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My Weekly Reader 3 March 2017.

In the last third of the 19th Century, America sprinted through massive industrialization. Sweeping development ended in “consolidation.”[1] Big business sought to control the dangers to immense investments they had made. By organizing production and markets they sought to avoid destructive competition and reduce waste. “Trusts” and holding-companies, vertical and horizontal integration became hall-marks of industry. Under the sponsorship of J. P. Morgan, this consolidation movement spread to financial services and capital markets. Bankers and stock-brokers became central figures in the private management of the American economy.

“Old money” seems out of place in a “New Land” built by such hustlers. Still, it has been an American reality since the time of Edith Wharton. Prep schools, Ivy League universities, clubs, churches, and marriage bound families with a lineage into one important element of the American elites. By the early 20th Century, banks and the stock-exchange opened an appealing career avenue to the young men of this group. Like many others of his group, Richard W. Whitney (1888-1974) turned down it.[2]

From 1919 on, Whitney and Company brokered most of the bonds for the great Morgan bank.[3] This burnished the already-impressive respectability that came with an education at Groton and Harvard, followed by marriage into a family with excellent ties to the Republican party. Respectability isn’t the same thing as admiration. Other men in the market didn’t think much of Whitney’s abilities. The client base of his firm failed to grow. However, bonds aren’t flashy (or mercurial) in the way that stocks may be, so they appeared to be a perfect match with Dick Whitney. Appearances can be deceiving. Whitney lived beyond his means. Rather than retrench, he borrowed from an ever-widening pool of banks, family, friends, and acquaintances. The personal loans often were unsecured by collateral, other than his respectability, family ties, and friendships.

When the Stock Market crashed in October 1929, Whitney became highly esteemed for his ineffectual steadiness in the face of disaster.[4] Soon, his colleagues on the Stock Exchange elected him president, then re-elected him four times.

For a time, his respectability allowed him to go on borrowing. Eventually, even the president of the Stock Exchange couldn’t get an unsecured loan. So, in 1936, he misappropriated resources placed in his trust, then did it again and again. In March 1938, the roof fell in. Convicted of embezzlement, Whitney did three years in prison.

One question raised by this little immorality tale is how idiots—honest and dishonest—come to have big chunks of money.[5] Richard Whitney didn’t strike people as sharp. Anyone from the world of the monied must have been able to set a price on his life-style, then match it with what they knew of his income. Yet they went on lending him money or trusted him to manage the resources of other people. Why?

When Whitney lost everything and went to prison, friends gave his now-homeless wife a house to live in. Later, Whitney’s more successful older brother paid all of his huge personal debts. The bonds of family and friendship and respectability hold fast, even in the face of logic.

[1] See Naomi Lamoreaux, The Great Merger Movement in American Business, 1895-1904 (1988).